Mirvac narrows guidance as profit rises

Diversified property group
Mirvac
has foreshadowed an 8 per cent to 10 per cent rise in earnings per security this financial year after a first half with solid returns in the investment portfolio and a record $1.5 billion in residential contracts on hand.

Mirvac chief executive
Susan Lloyd-Hurwitz
said the stability of earnings in the office towers, shopping centres and industrial facilities, together with a high level of development EBIT (Earnings before Interest and Tax) already locked in, had given “an increased confidence around our full year performance".

Full-year guidance is for operating earnings per security of 11.8¢-to-12¢, up from last year’s 10.9¢, and a distribution of 8.8¢-to-9.0¢ a security compared to last year’s 8.7¢.

“Is there potential for a earnings upgrade? The answer is no," Ms Lloyd-Hurwitz told analysts.

On the day, the stock lost ground.

Morgan Stanley said the pullback was not a surprise, despite the solid performance and upbeat message.

Mirvac had a good rise through February, and the earnings per security guidance was no more than expected.

Morgan Stanley prefers
Stockland
for residential exposure and
DEXUS Property Group
for commercial.

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Ms Lloyd-Hurwitz said Mirvac had bought nearly $700 million of assets in the half but had maintained a “disciplined focus on executing our strategy".

In the $7.1 billion Mirvac Property Trust investment portfolio, the group achieved like-for-like net operating income growth of 3.3 per cent, and a better than benchmark ungeared annual return of 7.9 per cent.

Ms Lloyd-Hurwitz said that despite the challenging office market, the group was well positioned due to its low vacancy, high average fixed rent increases, quality tenant profile, and a manageable expiry profile.

Vision and tenacity

In the shopping centres, the net operating income grew just 2.1 per cent.

Ms Lloyd-Hurwitz said dominant retail centres with a non-discretionary spending focus would outperform.

She said industrial sector demand was stable, but expected to improve in line with business confidence.

Mirvac’s gearing, at 28.8 per cent, is near the top of 20-to-30 per cent target.

S&P upgraded the group’s credit rating during the half to BBB+ with a stable outlook. Mirvac’s chief financial officer,
Shane Gannon
, said that on other measures used by S&P like interest rate coverage and Funds from Operations, Mirvac had “plenty of headroom".

Mirvac could reduce gearing through the sale of its half stake in the Westpac headquarters tower in Sydney, a stake last valued at $427.5 million, as well as through the distribution reinvestment plan and the sale of some of its $480 million of non-core assets.